Want & Anor v Blackbear (NT) Pty Ltd [2014] NTCA 3

 

PARTIES:                                         WANT, Gary John

 

                                                         AND:

 

                                                         WANT, Geraldine Elizabeth

 

                                                         v

 

                                                            BLACKBEAR (NT) PTY LTD

                                                            A.C.N. 116 222 005

 

TITLE OF COURT:                           COURT OF APPEAL OF THE NORTHERN TERRITORY

 

JURISDICTION:                               CIVIL APPEAL FROM THE SUPREME COURT EXERCISING TERRITORY JURISDICTION

 

FILE NO:                                          AP 9 of 2013 (21207410)

 

DELIVERED:                                   27 March 2014

 

HEARING DATES:                           4 February 2014

 

JUDGMENT OF:                              RILEY CJ, SOUTHWOOD

                                                         and BARR JJ

 

APPEALED FROM:                          KELLY J

 

CATCHWORDS:

 

CONTRACTS – building contract – contract termination – termination notice – intention to determine the contract – unequivocal statement of intention required – unequivocal if a commercial person clearly understands that notice is given – surrounding circumstances relevant – intention to determine contract at later stage insufficient.

 

CONTRACTS – building contract – contract termination – valid ground for termination – breach of contract – failure to proceed with due diligence – breach capable of remedy – not required to produce the same condition of affairs as if the breach had never occurred – substantial seizure of suspension or proceeding with the contract with reasonable diligence and competence adequate.  

 

 

Batson v Carvalho (1948) 48 SR (NSW) 417; Brenmar Building Company Pty Ltd v University of Newcastle (1999) 15 BCL 467; Diploma Construction Pty Ltd v Marula Pty Ltd [2009] WASCA 229; Fountain Select Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; FPM Constructions [2005] NSWCA 340; Hooper Constructions Pty Ltd v Chris’s Engineering Contracting Co [1970] ALR 821; Re Stewardson Stubbs & Collett Pty Ltd and Bankstown Municipal Council [1965] NSWR 1671; Shepherd v Felt and Textiles of Australia Ltd [1931] 45 CLR 359, referred to.

 

 

Spadaccini v Grice [2012] NTSC 41, distinguished.

 

 

REPRESENTATION:

 

Counsel:

    Appellant:                                    Self Represented

    Respondent:                                 L McCrimmon

 

Solicitors:

    Appellant:                                    Self Represented

    Respondent:                                 P Maher

 

Judgment category classification:   B

Judgment ID Number:                      Ril1405

Number of pages:                            31


IN THE COURT OF APPEAL

OF THE NORTHERN TERRITORY

OF AUSTRALIA

AT DARWIN

 

Want & Anor v Blackbear (NT) Pty Ltd [2014] NTCA 3

No AP 9 of 2013 (21207410)

 

 

                                                     BETWEEN:

 

                                                     GARY JOHN WANT

                                                         First Appellant

 

                                                     GERALDINE ELIZABETH WANT

                                                         Second Appellant

 

                                                     AND:

 

                                                     BLACKBEAR (NT) PTY LTD

                                                     A.C.N. 116 222 005

                                                         Respondent

 

CORAM:    RILEY CJ, SOUTHWOOD and BARR JJ

 

REASONS FOR JUDGMENT

 

(Delivered 27 March 2014)

 

RILEY CJ and BARR J:

Introduction

[1]       In 2009 the appellants entered into a building contract with the respondent to construct a house on land the appellants were purchasing in Humpty Doo. The appellants were dissatisfied with the progress of the works and on 8 July 2010 gave notice to the respondent that the “contract is terminated effective immediately”. Thereafter, the appellants denied the respondent access to the site and the respondent was unable to complete the works. The respondent disputed the right of the appellants to terminate the contract and, by letter dated 3 August 2010, the respondent purported to accept the repudiation of the contract and terminated the contract. The respondent then brought proceedings in the Supreme Court and eventually obtained judgment against the appellants in the sum of $81,245.55 and interest of $50,711.51. In a subsequent judgment the respondent was awarded costs of and incidental to the proceeding on a standard basis to 11 December 2012 and thereafter on an indemnity basis.

[2]       The appellants, who were legally represented in the court below but are now self-represented, have lodged a notice of appeal. Although the notice is discursive in style and confusing, it is possible to discern a number of complaints made by the appellants.

The history of the works

[3]       The contract was dated 3 June 2009 but, it seems, was not signed until 19 August 2009. The contract price was $399,620 inclusive of GST and payments were to be made in accordance with a schedule of progress payments annexed to the contract.

[4]       The trial judge noted that the works were slow to start. A building permit was issued on 29 October 2009 and the respondent took possession of the site on 20 November 2009. The laying of the slab was completed on 21 November 2009. Very little work was done on the house until 20 January 2010.  The respondent attributed the delays to wet weather.

[5]       By 11 March 2010 the respondent had issued the appellants with three invoices for progress payments and each invoice had been paid. This amounted to 79% of the total work.

[6]       The appellants were frustrated by the slow progress of the work and, on 8 May 2010, sent a letter to the respondent expressing concern. The letter pointed out that the contract provided for completion of the work approximately 24 weeks after the main slab was complete and that had not occurred. The respondent had not sought any extensions of time pursuant to the terms of the contract and none had been granted. Her Honour found that there was no entitlement in the respondent for “an extension of time for the due date for practical completion under the contract”. The respondent did not reply to the letter.

[7]       There were other communications between the appellants and the respondent regarding the progress of the works and then, on 21 June 2010, the appellants wrote to the respondent as follows:

NOTICE OF INTENT IN DETERMINING CAPABILITY OF BEARE HOMES TO COMPLETE WORKS AT LOT 5134, 9 BARNETT CRT HUMPTY DOO

Mike:

As an ongoing failure of (the respondent) to complete the works in accordance with the terms of the contract (clause  8 and Items  A, B & B1), lack of response to notification (clause 28) and provision of information requested in our letter dated 08 May 2010, and ongoing apparent inability for the works to progress to completion with due diligence and in a competent manner (clause  24(a)(ii)), we the Proprietors/Owners and Customer hereby give notice that, unless (the respondent) provide notification in writing within 5 days of receipt of this letter (clause 28) detailing programmed progression of works to completion including guaranteed completion date, evidence of delays and other requested information contained within our previous correspondence, it is deemed and understood that (the respondent) is unable or unwilling to complete the works.

Further, as (the respondent) has sought not to respond to our letter dated 8 May 2010, in accordance with the terms of notifications clause 8, as to programmed works and progression of works to completion it is understood that (the respondent) by omission acknowledge they are in default of terms of the contract.

As an outcome, in accordance with clause 24(a), it is our intent to determine whether (the respondent) is capable of completion of these works. As part of this determination we shall consider actions necessary, in accordance with clause 24(b) of the contract, to ensure the works are completed in a professional, competent and diligent manner.

As (the respondent) has failed to bring the works to practical completion or completion by the date identified in Item B and B1 we hereby advise that the following costs are considered to be at (the respondent’s) expense and are a debt owed to the Proprietors/Owners and Customer” (thereafter certain costs were identified including hire of a demountable and electricity).

[8]       The respondent did not reply to the letter other than to send an invoice for $81,583.85 being for progress payment number four. The work necessary to justify the payment of the invoice had not been completed. The appellants disputed the claim and, again, complained of a lack of progress with the works. After receiving that invoice, dated 1 July 2010, the appellants sent an email to the respondent dated 2 July 2010 seeking copies of permit applications, building inspection reports and approvals along with details as “to all delays claimed in reaching completion” and “date expected for completion and programmed works to meet this deadline”. The respondent was given until 8 July 2010 to provide the requested information and the appellants went on to state:

If this is not received by the due date it will be deemed (the respondent) is unable to complete the works and further considerations in accordance with the contract will be actioned.

[9]       The respondent replied on 7 July 2010 apologising for having mistakenly issued the fourth progress claim and withdrew the claim indicating that the house would be “ready for handover next Friday, 16th July 2010”.

[10]    On 8 July 2010 the appellants sent an email to the respondent in the following terms:

Notice is hereby given that in accordance with the terms as set out within the Contract (the respondent) has been deemed unable in our determination to carry out and bring to completion, as identified for date of completion identified in Attachment Item B1 the works prescribed under the contract in a diligent and competent manner and as such the contract is terminated effective immediately.

[11]    Thereafter the appellants refused the respondent access to the site to complete the works. After further correspondence the respondent purported to accept the repudiation of the contract and terminated the contract. These proceedings were then commenced.

Termination of the contract

[12]    The first issue to be resolved by her Honour was whether the appellants validly terminated the contract by the letter dated 8 July 2010. Their right to terminate the contract was to be found in clause 24(a) of the contract which, in so far as is relevant to these proceedings, was in the following terms:

If the Builder shall make default in any of the following respects, viz:

(i)         

(ii)        If he fails to proceed with the Works with due diligence and in a competent manner; or

(iii)      If, without reasonable cause, he fails to commence the works or wholly suspends the same before completion; or

(iv)      ….; or

(v)        If he by notice in writing intimates that he is unable or unwilling to complete the Works, or that he abandons the Contract;

AND if in the case of any such default as aforesaid is capable of remedy, he shall continue such default for five (5) days after notice in writing specifying the same and stating the Proprietors intention of determining the Builders employment has been given to him, THEN the Proprietor may, without prejudice to any other rights or remedies, by notice by registered mail determine the employment of the Builder under this contract.

[13]    The reason for termination provided by the appellants in the letter dated 8 July 2010 (set out at [10] above) was not a reason within clause 24(a) of the contract. However, as the trial judge observed, the appellants were entitled to rely upon any valid ground of termination of the contract which existed at the time notwithstanding that such ground was not a ground relied upon in the notice of termination.[1]

[14]    The judge went on to consider whether a valid ground for termination existed. In this regard her Honour found that the respondent’s “lengthy, largely unexplained delay in completing the works” amounted to a failure to proceed with the works with due diligence. The respondent did not challenge that finding on this appeal.

[15]    Having found a valid ground for termination existed, her Honour then considered whether the default was capable of remedy. Her Honour observed that if the default was capable of remedy, clause 24(a) required the appellant to give written notice specifying the default. The default must then continue for five days after the giving of such notice before termination could occur.

[16]    Her Honour held that the correspondence addressed to the respondent did not provide effective notice under clause 24(a) specifying that the respondent was in default by failing to proceed with due diligence and giving notice of an intention to determine the contract. Her Honour held that none of the appellants’ correspondence informed the respondent that if it did not proceed with the works with due diligence within five days of the notice, then the appellants would exercise their rights to terminate the employment of the respondent. The judge concluded that the appellants had no right to terminate the contract, as they sought to do, by delivering the letter of 8 July 2010.

The appellants’ submissions – termination

[17]    The appellants submitted that the issue of due diligence required assessment of “the conduct of the party in default and consideration as to that conduct and whether the breach of the contract evinces an unwillingness or predetermined refusal to be bound by the contract”. Reference was made to Re Stewardson Stubbs & Collett Pty Ltd and Bankstown Municipal Council.[2] The appellants submitted that the failure to proceed with due diligence could not be remedied and that the respondent refused and rejected “all approaches to rectify or complete the works”. In support of that submission, the appellants said:

The evidence that the house was not constructed in accordance with the certified site and construction plans make it unreasonable to consider this to be remedied without demolishing and rebuilding which would be considered unreasonable by the courts. The respondent refused verbally to carry out any repairs or rectifications including those identified in the very early stages of construction such as gaping holes in the vermin proofing pointed out the same day it was installed.

[18]    It is apparent that the appellants misunderstood the basis of her Honour’s finding that the respondent failed to proceed with the works with due diligence. As is made plain in the reasons for decision, her Honour based her finding upon the conclusion that the respondent had failed to proceed with the works with due diligence by reason of its “lengthy, largely unexplained delay in completing the works”. Her Honour observed:[3]

Failure to proceed with due diligence has been held to mean “a general failure to proceed with that degree of promptness and efficiency that one would expect of a reasonable builder who has undertaken a building project in accordance with the terms of the contract in question”.[4] The phrase refers not only to personal industriousness, but also to reasonable efficiency in management and organisation of the works.[5] If, without any reasonable explanation, the work falls seriously behind what could reasonably be expected, that is evidence of lack of due diligence.[6]

[19]    On this basis, her Honour found that the respondent had failed to proceed with the works with due diligence. In relation to that failure, her Honour concluded that the identified breach was capable of being remedied. The judge adopted the following observations of Sugerman J in Batson v Carvalho:[7]

To “remedy” a breach is not to perform the impossible task of wiping it out – of producing the same condition of affairs as if the breach had never occurred. It is to set things right for the future, and that may be done even though they have for some period not been right, and even though that may have caused some damage to the lessor. … A breach may be remedied … Even though the time for doing the thing under the covenant may have passed ….

[20]    In Re Stewardson Stubbs & Collett Pty Ltd and Bankstown Municipal Council Moffitt J observed:[8]

I do not think it is a question of rectifying every consequence of the past suspension or lack of diligence or competence but the substantial question would be whether the builder had in the 14 day period, in a substantial commercial sense, and not in a nominal or colourable way ceased the suspension or proceeded with the contract with reasonable diligence and competence.

[21]    In our opinion the judge was correct to determine that the failure was capable of remedy.

[22]    During the appellants’ submissions it became apparent that they contended that, in addition to finding that the respondent had failed to proceed with due diligence, her Honour should have concluded that the respondent had failed to proceed with the works in a competent manner and that such failure could not be remedied. Reference was made to the siting of the building and to suggested non-compliance with construction plans.  

[23]    In the reasons for decision her Honour observed that no issue had been raised about the respondent’s competence.[9] At the hearing before this Court, the appellants acknowledged that evidence regarding the siting of the building on the block and suggested non-compliance with the construction plans was either not led or not pressed before her Honour following a deliberate forensic decision taken by the appellants during the course of the trial. In those circumstances, the observation made by the trial judge that no issue had been raised about the respondent’s competence was not in error. There was no evidentiary basis for finding that the respondent had failed to proceed with the works in a competent manner. This ground of appeal should be dismissed.

[24]    The issue then to be resolved by the judge was whether the notice provided by the appellants to the respondent was effective in terminating the contract pursuant to the provisions of clause 24(a) for the failure to proceed with due diligence. Her Honour concluded that none of the correspondence amounted to effective notice to the respondent specifying that it was in default by failing to proceed with due diligence in completing the work and giving notice of intention to determine the contract.

[25]    Clause 24(a) of the contract provided that where the Builder (respondent) is in default (as found by her Honour) and where the default is capable of remedy (as found by her Honour) then, if he shall continue:

… such default for five (5) days after notice in writing specifying the same and stating the Proprietor’s intention of determining the Builder’s employment has been given to him, THEN the Proprietor may, without prejudice to any other rights or remedies, by notice by registered mail determine the employment of the Builder under this contract.

[26]    The notice “must be in such terms that it is clear to the builder that it is being given a notice under such clause”.[10] The notice should leave the builder in no doubt that if default continues the building contract will be determined under clause 24 of the contract.

[27]    In Re Stewardson Stubbs & Collett Pty Ltd and Banks Municipal Council[11] Moffitt J observed in relation to such a clause:

While I agree that the notice should be unequivocal I think this should be determined from the practical viewpoint by asking whether commercial persons such as a builder would understand clearly that it was a notice under clause 19(a).

[28]    In Diploma Construction Pty Ltd v Marula Pty Ltd[12] Newnes JA (with whom Owen JA and Miller JA agreed) said in relation to another such clause:

In my view, in order to be a valid notice under cl 8.1(a), a notice had to clearly direct the respondent’s attention to the alleged default with sufficient specificity that the default was capable of being readily identified by the respondent. I accept the appellant’s submission that whether a notice is sufficient for that purpose is to be considered not solely by reference to the terms of the notice but also having regard to the understanding which will be brought to it by the respondent, including its knowledge of the circumstances in which the notice was given: see FPM Constructions, [150] – [151].[13] But it cannot be left to the respondent to winkle out an alleged default from an equivocal, vague or imprecise notice.

[29]    In this Court the appellants relied upon the letter of 21 June 2010[14] and submitted that the respondent was “an experienced builder with 25 years’ experience in the industry” and that the notice provided to the respondent in that letter would be understood by the respondent as a notice of intention to determine the employment of the respondent.

[30]    In our opinion the letter of 21 June 2010 did specify an applicable default. The letter was written in the context of complaints by the appellants of slow progress and a failure to complete the works in a reasonable time. The letter referred to the “ongoing failure” of the respondent to complete the works in accordance with the terms of the contract and identified an “ongoing apparent inability for the works to progress to completion with due diligence”. The respondent could be left in no doubt that the appellants regarded the failure to proceed with the works with due diligence as a default for the purposes of clause 24(a) of the contract.

[31]    The more difficult question is whether the letter stated the intention of the appellants to determine the contract. The trial judge concluded that it did not. We agree.

[32]    The purpose of the letter is set out in the heading to be a notice of intent on the part of the appellants to determine the capability of the respondent to complete the works. The word “determine” in this context must mean to “ascertain exactly” or “settle or decide”[15] whether the respondent had the capability to complete the works. Consistent with the heading, the letter then advised the respondent that:

… it is our intent to determine whether (the respondent) is capable of completion of these works [emphasis added].

[33]    In the body of the letter the appellants sought information from the respondent regarding delays and, again, requested the provision of information requested in earlier correspondence along with a detailed program for the progression of the works to completion. The appellants sought his information on the basis that a failure to provide it would be “deemed and understood that (the respondent) is unable or unwilling to complete the works”. The information was sought as part of the investigation. As a further part of the investigation the appellants advised that they would consider “actions necessary, in accordance with clause 24(b) of the contract, to ensure the works are completed in a professional, competent and diligent manner”. This was not a threat to terminate the contract and engage another builder as permitted under clause 24(b) but, rather, to consider alternative arrangements as part of the investigation of the capacity of the respondent.

[34]    The letter does not contain any statement, either direct or indirect, of an intention on the part of the appellants to determine the employment of the respondent. The letter did not provide an unequivocal statement of intent and, on an objective assessment, the terms did not make it clear to the respondent that notice was being given of an intention to determine the contract. That may have been the course followed in the event of an unsatisfactory conclusion to the investigation but that point had not been reached. The appellants were, at the time the letter was sent, gathering information and considering their options but no more.

[35]    We would dismiss this ground of appeal.

Other Grounds

[36]    The remaining grounds of appeal can be dealt with briefly. Many of the complaints have been dealt with in the above discussion. Other so-called grounds of appeal are no more than:

(a)      complaints as to alleged pre-contractual representations which were not in evidence or in issue in the proceedings;

(b)     re-assertion of factual matters placed before the trial judge and resolved by her Honour without demonstrated error;

(c)     matters of an evidential nature that were not led in the trial, for example that the house was not “sited” at the correct location on the block when no admissible evidence was led to substantiate this allegation or as to any damage flowing from any such alleged failure;

(d)     complaints that the respondent had not returned to the site to complete the works even though the contract had been terminated and the appellants accepted that the respondent was not permitted access to the site; and

(e)     restatement of claims rejected by the judge without providing a basis for claiming error on the part of her Honour.

 

[37]    In addition, there were complaints focused on the report of the expert, Mr Brears, without acknowledging that the report was jointly commissioned by the appellants and the respondent and tendered at trial by agreement. The appellants did not challenge the accuracy of the report at trial and the appellants did not demonstrate any error on the part of the trial judge in accepting the evidence of Mr Brears.

Costs of the proceedings

[38]    The matter came back before the trial judge in relation to the issue of costs of the proceedings. A judgment was delivered on 4 October 2013. The appellants were ordered to pay the costs of the respondent of and incidental to the proceeding on a standard basis to 11 December 2012 and thereafter on an indemnity basis.

[39]    The order for indemnity costs from 11 December 2012 was based upon the conclusion of her Honour that the appellants acted unreasonably and from a “wilful blindness to the facts” from at least that date. The basis of those conclusions was that, prior to the matter coming on for trial, the parties jointly engaged an expert, Mr John Brears, to determine the extent of any unfinished work, identify any defects in the work and provide evidence of what it would cost to finish the work and remedy such defects. The report was produced by Mr Brears and was received as the only evidence in relation to the extent and cost of the unfinished and defective work. This was valued at $8,165. Thereafter, on 11 December 2012, the respondent served on the appellants a Calderbank offer which reflected the calculations contained in the Brears report.

[40]    In the court below the appellants submitted that the offer was unacceptable because it did not make any allowance for any breaches of the contract by the respondent or the delay in completion of the works. Her Honour said, in that regard:

If (the appellants) had wanted (the respondent) to take into account a counterclaim for damages for those matters, they were obliged to provide figures and some evidentiary basis for the figures. In the absence of such quantification and evidence (the respondent) could (and did) safely leave those claims out of account. That they were right to do so is confirmed by the fact that (the appellants) did not pursue those claims at trial.

These findings were not challenged on the appeal.

[41]    The judge concluded the appellants acted unreasonably in that, having come into possession of the information provided in the Brears report, they conducted the proceedings in “wilful disregard of known facts”. Her Honour held that, at that time, the appellants knew with certainty the minimum amount they owed the respondent for work done and that they had no evidence to support any of their claims for damages. Instead of making an attempt to settle the matter consistent with those understandings, the appellants made what her Honour described as an offer which was “plainly unreasonable”. The offer was “worse than (the respondent’s) worst possible result should the matter proceed to trial”. The judge concluded:

Bearing in mind that (the respondent) took about a month to formulate an offer of settlement following receipt of the draft Brears report, I think it would have been reasonable for (the appellants) to have utilised the information available to make an offer (or a payment) within the same timeframe. I therefore order that (the appellants) pay (the respondent’s) costs of and incidental to the proceeding on a standard basis to 11 December 2012 and thereafter on an indemnity basis.

[42]    The making of a costs order involves the exercise of an “absolute and unfettered” discretion but, of course, that discretion must be exercised judicially.[16] In this case it has not been established that the exercise of the discretion miscarried.

Practice Direction 6

[43]    Practice Direction 6 was introduced in 2009 and was designed to maximise the prospects of civil proceedings settling without incurring the costs of court proceedings. The objectives of the Practice Direction included encouraging the exchange of early and full information between the parties, enabling parties to avoid litigation by agreeing to a settlement of the claim, and supporting the efficient management of proceedings where litigation could not be avoided. In the event that resort to court proceedings becomes necessary, the Practice Direction endeavoured to ensure that each party had a sufficient understanding of its case, and the case against it, to accurately assess its prospects of success. It was noted that the court was expressly empowered to take into account a party’s compliance with the reforms in the conduct of litigation when awarding costs and interest.[17] The Practice Direction placed the parties to the proceedings under a general obligation to disclose the nature of their respective cases and to attempt to settle the dispute prior to the commencement of litigation.

[44]    The appellants complained that, in awarding costs, the trial judge did not give proper consideration to the application of the Practice Direction and reference was made to the reasons for decision in Spadaccini v Grice.[18]  The appellants submitted that the respondent refused to enter into negotiations and refused all offers of dispute resolution or mediation.

[45]    Reference to the material placed before her Honour reveals that there was a good deal of correspondence between the appellants and solicitors for the respondent prior to the commencement of proceedings. On 9 December 2011 a detailed letter, which was expressed to be pursuant to the provisions of Practice Direction 6, was forwarded by the respondent’s solicitors to the appellants. The letter provided details of the respondent’s claim and copies of supporting documentation. There was a lengthy response from the appellants, dated 13 February 2012, which made complaints of delay in performance and referred to defects in construction.  However, the appellants’ response did not go on to provide any evidence in support of the complaints or any quantification of the value of the alleged defects. It did not accept the claim in whole or in part or make proposals for settlement. The letter did not demonstrate that the appellants had suffered damage equal to or greater than the sum claimed by the respondent.  Further, the information necessary to substantiate a claim for damages or some form of set-off was not provided prior to the commencement of proceedings on 24 February 2012. As was noted by her Honour, apart from the joint report prepared by Mr Brears, the figures and the evidentiary basis for those figures were not produced at trial. Indeed the trial judge found that, on receipt of the Brears report, the appellants proceeded in “wilful disregard” of the information contained in the report.

[46]    The history of the proceedings, as recorded in the correspondence placed before the judge on the hearing of the costs argument, does not support the appellants’ claims.  The respondent complied with Practice Direction 6.  Her Honour was not in error.

[47]    In our opinion the submission is without merit.

[48]    In our opinion the appeal should be dismissed.

SOUTHWOOD J:

Introduction

[49]    The principal issue in this appeal is: was the letter from the appellants to the respondent dated 21 June 2010 a valid notice within the meaning of cl 24(a) of the Building Contract? In my opinion, it was and the Building Contract was validly determined by the appellants on 8 July 2010. The appeal should be allowed.

Clause 24 of the Building Contract

[50]    Clause 24 of the Building Contract states:

(a)    If the Builder shall make default in any of the following respects, viz:

 

(i)          If he becomes bankrupt or makes an assignment of his Estate for the benefit of his creditors or makes a composition or arrangement with his creditors or, if being a company, it shall go into liquidation, whether voluntary or compulsory (except for the purpose of reconstruction); or

 

(ii)        If he fails to proceed with the Works with due diligence and in a competent manner; or

(iii)      If without reasonable cause, he fails to commence the works or wholly suspends the same before completion; or

(iv)      If he refuses or persistently neglects:

(A)         To comply with the requirements of clause 10(a) hereof, or

(B)         To remove or remedy defective work or improper materials, so that by such refusal or persistent neglect the Works are materially affected; or

(v)        If he by notice in writing intimates that he is unable or unwilling to complete the Works, or that he abandons the Contract;

AND if in the case of any such default as aforesaid that is capable of remedy, he shall continue such default for five (5) days after notice in writing – specifying the same and stating the Proprietor’s intention of determining the Builder’s employment has been given to him, THEN the Proprietor may, without prejudice to any other rights or remedies, by notice by registered mail determine the employment of the Builder under this contract. The Proprietor may not give a Notice in pursuance of this sub-clause whilst he is breach of this Contract.

(b)    In the event that the Proprietor determines the employment of the Builder in accordance with sub-clause 24(a), the Proprietor may thereupon engage another builder to build the Works and the following provisions shall apply

 

(i)          If the reasonable cost of building the Works by the other builder (after taking into account the amount available to the Proprietor from any Retention Fund or other form of security under this Contract) exceeds that which would have been otherwise payable under this Contract, then the amount of that excess shall be a debt due and payable by the Builder to the Proprietor.

 

(ii)     If the reasonable cost of building the Works by the other builder (after taking into account the amount available to the Proprietor from any Retention Fund or other form of security under this Contract) differs from but is less than that which would have been otherwise payable under this Contract, then the amount of the difference shall be a debt due and payable by the Proprietor to the Builder.

[51]    Determination of the employment of the Builder by the Proprietor under      cl 24 of the Building Contract is a two-step process. The first step is the giving of a written notice which specifies the relevant default and states that it is the intention of the Proprietor to determine the Builder’s employment if the Builder continues in default for five days. The second step is the giving of a further notice by the Proprietor to the Builder stating that the employment of the Builder under the contract has been determined.

[52]    Under cl 24 of the Building Contract, if the Builder performs the obligation breached after being required to do so, the breach ceases to be available as a source of termination. So that before taking the second step referred to at [51], the Proprietor must consider whether the Builder has continued to be in default of the contract. A finding that the Builder’s default has not been remedied during the five day period specified in the notice under clause 24(a) of the Building Contract should not be lightly made. Otherwise, the astutely advised Builder, who has been in default under the contract, may take advantage of what is said to be a wrongful repudiation by the Proprietor.

[53]    In this case the default relied upon by the appellant under cl 24(a) (ii) of the Building Contract meant that it would be difficult to assess whether the default had been remedied by the respondent within the five day period or not. Assessing whether a Builder has begun to operate in a diligent manner may be a difficult task. As her Honour the trial Judge held:

Failure to proceed with due diligence has been held to mean “a general failure to proceed with that degree of promptness and efficiency that one would expect of a reasonable builder who has undertaken a building project in accordance with the terms of the contract in question.” The phrase refers not only to personal industriousness, but also to reasonable efficiency in management and organisation of the works. If, without any reasonable explanation, the work falls seriously behind what could reasonably be expected, that is evidence of lack of due diligence [emphasis added].[19]

[54]    The Builder’s conduct must be evaluated in all the circumstances.[20] A return to work by the Builder during the five day period specified in the notice does not necessarily indicate that the default has been remedied or has ceased; it may simply be another false start and part of the Builder’s continuing erratic work pattern. As a result, the appellants sought a program of works and a completion date from the respondent; and adherence to the works program.

The form of the first notice under clause 24(a) of the Building Contract

[55]    A notice of default under cl 24(a) (ii) of the Building Contract must inform the builder of, at least, the following:

1.   The Builder has failed to proceed with the works with due diligence and in a competent manner and is in default under the Building Contract.

2.   The Proprietor intends to determine the Builder’s employment if the Builder’s default continues for five (5) days after receipt of the notice.

[56]    There is, of course, a variety of different ways that the information referred to at [55] may be expressed. The notice is not to be interpreted as a technical document but in accordance with business common sense.[21] It is not necessary for the Proprietor to use any particular form of words; it is the substance of what the notice conveys in the context in which it is given to the Builder that is important.[22] The breach must be sufficiently identified and the notice must communicate an election by the Proprietor to terminate if the default is not remedied in five days.                                                                                                

[57]    The notice is not invalidated because the Proprietor informs the Builder of the deliberative process the Proprietor is going to undertake to determine whether or not the default has continued. Nor is the notice invalidated because the Proprietor informs the Builder about the factors the Proprietor is going to take into account to determine if the default has continued.

[58]    Whether a notice is valid notice within the meaning of cl 24(a) of the Building Contract is to be determined objectively and in context by reference to the understanding of a reasonable recipient with knowledge of the circumstances in which the notice is given.

[59]    In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd,[23] Lord Steyn stated:

The question is not how the landlord understood the notices. The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual sense. … the inquiry is objective: the question is what reasonable persons, circumstanced as the actual parties were, would have had in mind. It follows that one cannot ignore that a reasonable recipient of the notices would have had in the forefront of his mind the terms of the leases. Given that the reasonable recipient must be credited with knowledge of the critical date and the terms of clause 7(13), the question is simply how the reasonable recipient would have understood such a notice.

[60]    The same principles apply to the interpretation of a notice under cl 24 of the Building Contract.

The letter dated 21 June 2010

[61]    On 21 June 2010 Mr Want sent the respondent a letter which stated:

NOTICE OF INTENT IN DETERMINING CAPABILITY OF BEARE HOMES TO COMPLETE WORKS AT LOT 5134, 9 BARNETT CRT, HUMPTY DOO

Mike:

As an ongoing failure of Beare Homes to complete the works in accordance with the terms of the contract (clause 8 and Items A, B & B.1), lack of response to notification (clause 28) and provision information requested in our letter dated 08 May 2010, and ongoing apparent inability for the works to progress to completion with due diligence and in a competent manner (clause 24(a)(ii)), we the Proprietors/Owners and Customer hereby give notice that, unless Beare Homes provide notification in writing within 5 days of receipt of this letter (clause 28) detailing programmed progression of works to completion including guaranteed completion date, evidence of delays and other requested information contained within our previous correspondence, it is deemed and understood that Beare Homes is unable or unwilling to complete the works.

Further, as Beare Homes has sought not to respond to our letter dated 08 May 2010, in accordance with the terms of notifications clause 8, as to programed works and progression of works to completion it is understood that Beare Homes by omission acknowledge they are in default of terms of the contract.

As an outcome, in accordance with clause 24(a), it is our intent to determine whether Beare Homes is capable of completion of these works. As part of this determination we shall consider actions necessary, in accordance with clause 24(b) of the contract, to ensure the works are completed in a professional, competent and diligent manner.

As Beare Homes has failed to bring the works to practical completion or completion by the date identified in Item B and B.1 we hereby advise that the following costs are considered to be at Beare Homes expense and are a debt owed to the Proprietors/Owners and Customer:

·     Demountable hire – 9 months @ $397 per month = $3,176 + $320 delivery charges; total: $3,496.00;

·     Container cost - $3,300 + delivery charge $360; total $3,660;

·     Electricity charges as identified after reading of meter by Power Water to be carried out at handover;

Sincerely,

Gary & Geraldine Want

[62]    As to the context in which the notice was given, the trial Judge made the following findings of fact.

[12]    In his affidavit, Mr Beare deposed that Beare Homes “continued to construct the house in accordance with the contract and on 1 July 2010 it issued the Defendants with tax invoice 985 in the sum of $81,583.85 for work to completion of stage 4 of the contract”.  However, that glosses over what really happened.

[13]    It appears that work on the site came to a virtual standstill and, not unnaturally, the Wants became frustrated.  Mr Want deposed that he had initially been told that the house would be completed and ready for occupation by Christmas 2009.  It soon became clear that that was not going to happen. 

[14]    On 8 May 2010, Mr Want sent a letter to Beare Homes by registered post expressing his concerns.  In that letter he pointed out that under the contract practical completion was due approximately 24 weeks after the main slab was complete, which he calculated was about 8 May 2010, the date of the letter.  He complained (accurately) of the “ongoing failure of Beare Homes to complete the works in accordance with the terms of the contract (clause 8 and items A, B and B1)”. …. He also requested copies of all building permit applications and approvals, copies of all building inspection reports and approvals and notification of the date when the Builder expected to reach practical completion, all purportedly “in accordance with clause 9”. …. 

[15]    Beare Homes simply ignored the letter of 8 May.  Mr Want says that he has in his possession a signed original undated letter purporting to respond to his letter of 8 May.  That letter simply says that there was a lot of rain and gives some figures for November, December, January and February.  Mr Want says that he does not know when (or how) he got this letter but does not believe he received it before he sent his subsequent correspondence to Beare Homes.  Mr Beare’s evidence about this supposed reply was unsatisfactory.  He did not mention it in his affidavit.  In cross examination he said that he responded to the letter of 8 May by email giving details of the weather.  The Wants say they did not receive any such email and Mr Beare did not produce one; moreover an email communication would not have resulted in Mr Want receiving a signed original letter.  Even if that letter had been sent by Beare Homes, it would not have complied with the requirements of clause 9 of the contract for the purpose of entitling Beare Homes to an extension of time for practical completion.  Later in cross examination Mr Beare said he “most likely” gave the Wants notification of delays due to inclement weather orally when they came into the office.  I do not accept that evidence. 

[16]    I find that Beare Homes did not provide the Wants with notification of any delays in the Works in accordance with clause 9 of the contract and that the provisions of clause 9 do not apply to entitle Beare Homes to an extension of time for the due date for practical completion under the contract.

[17]    On 14 May 2010, Mr Want again emailed Beare Homes complaining that virtually no work had been done since the beginning of May and saying: “As it appears the construction period has gone past practical completion date we need to be informed on how Beare Homes will meet the terms of the contract regarding completion.”  (….)

[18]    The only response was a terse email dated the same day which said (in full): “I have just spoken to Richard as we are trying to organise a tiler for your place.”  Not surprisingly, Mr Want was not mollified.  He replied, by email dated 16 May, pointing out that this should have been arranged in advance and stating: “Programming the works to meet the terms of the contract is Beare Homes’ responsibility and accountability.”  He made a number of other complaints and ended: “As previously requested we require notification of completion date as family will be visiting the first week in June, to stay with us in our new home.  They have already cancelled their flights three times due to Beare Homes’ delays in completing the works and are unable to cancel again.” 

[19]    This did not produce a response (apart from some correspondence about payment for extras) and on 1 June 2010, Mr Want again emailed Beare Homes complaining about delays in completing the tiling and starting work on the verandah.  The email ended, “Please advise Mike that we are yet to receive a reply from our letter to Beare Homes which is now overdue in accordance with the terms of the contract.”  Evidently this was a reference to the letter of 8 May.  As stated above, there was no requirement under the contract for correspondence to be answered within 5 days – or any other specified time frame.

[20]   There being still no response, Mr Want wrote to Beare Homes again on 21 June 2010. 

[22]    … Mr Want was correct in pointing out, as he did in the letter of 8 May 2010, that the works had not been completed by the due date for practical completion, and Beare Homes had not obtained (or even claimed) an extension of time by complying with the provisions of clause 9.  It was therefore in breach of its obligations under clause 8 of the contract to “regularly and diligently proceed and complete the works by the Date for Practical Completion”. 

[23]    The only response that Mr Want received to his letter of 21 June was an invoice.  On 1 July 2010, Beare Homes sent an invoice to the Wants for $81,583.85, said to be for “Progress Payment number 4, for house …. As per progress payment schedule.”  Under the schedule, the fourth progress payment is due when work described as “kitchen cupboards installed gyprock ceiling, painting and wall tiles 2nd fix plumbing 2nd fix electrician” has been completed.  At this point, according to the progress payment schedule, the work is meant to be 99.5% complete.  The only work left to be covered by the fifth (and final) progress payment of $1,989.85 is “paint touch up, house and site cleaned”.

[24]    The work was not 99.5% complete when the invoice for the fourth progress claim was sent, and Beare Homes knew it.  On 2 July 2010, Mr Want sent a brief email formally disputing the fourth progress claim, and again wrote to Beare Homes, complaining once more of the lack of progress, and of the lack of communication.

[35] As at 8 July 2010, Beare Homes was in breach of clause 8 of the contract: it had not brought the building to practical completion by the due date and was not entitled to an extension of time in accordance with the provisions of clause 9.

[37]    In this case the due date for practical completion was approximately 24 weeks after laying the slab (i.e. by about 8 May 2010), and the work was still not complete by 8 July (2 months later).  The only excuse for this put forward by Beare Homes was rain in the period November 2009 to February 2010.  By submitting the third progress claim on 11 March 2010, Beare Homes represented that the works were 79% compete by that time. No reason has been put forward for the failure to progress the works in the period from 11 March to 8 July 2010.  Further, there is evidence of failure to properly organise the works.  On 14 May 2010, after the works were meant to be complete, Mr Want wrote complaining that virtually no work had been done since the beginning of May and the response was, “.... we are trying to organise a tiler”.  This, it seems to me, fell well short of the degree of organisation that would be required to perform the works with due diligence [emphasis added].

[63]    In finding that the respondent had failed to proceed with the works with due diligence her Honour the trial Judge found, among other things, that the respondent had failed to properly organise the works. Integral to the lack of organisation was the failure of the appellant to have a works plan with a specified completion date. From what is set out at [62], it is apparent that was also the view of the appellants.

Consideration

[64]    In the above context, the letter of 21 June 2010 does the following. (1) It specifies the relevant default, namely a failure to proceed with the Works with due diligence and in a competent manner in accordance with               cl 24(a)(ii) of the Building Contract. (2) It requires the respondent to provide, within five days of the receipt of the letter, a detailed programmed progression of the works to completion and a guaranteed completion date. (3) It states that, if the respondent does not provide the detailed programmed progression of the works and the guaranteed completion date within five days, the respondent is deemed to be unable and unwilling to complete the works. (4) It states that in accordance with clause 24(a), it is the appellants’ intent to determine if the respondent is capable of completion of the works. (5) It states, subject to the appellant’s determination at (4), in accordance with cl 24(b), the appellants will take all actions necessary to ensure the works are completed in a professional, competent and diligent manner.

[65]    Against the relevant background, the statement that “it is deemed and understood that Beare Homes is unable and unwilling to complete the works” would reasonably have been understood to mean no more than that, if the progression of works and guaranteed completion date is not provided within five days, the Building Contract may be terminated. Against the relevant background, the statement that, “in accordance with clause 24(a), it is our intent to determine whether Beare Homes is capable of completion of these Works” would reasonably have been understood to mean no more than the appellants would consider if the default specified had been remedied. As I have stated at [52] to [54] inclusive, it was necessary for the appellants to do so. The letter then goes on to state that the appellants will act accordingly and, to the extent necessary, exercise their rights in accordance with cl 24(b) of the Building Contract to ensure that the contract is completed in a professional, competent and diligent manner.

[66]    As a result of receiving the letter of 21 June 2010, the respondent would have been left in no doubt that the appellants had elected to terminate the Building Contract if they were satisfied that the respondent had not remedied its failure to proceed with the works with due diligence and in a competent manner. The meaning to be given to the letter is what the parties using those words against the relevant background would reasonably have understood them to mean.

 

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[1] Shepherd v Felt and Textiles of Australia Ltd [1931] 45 CLR 359 at 377-378.

[2] [1965] NSWR 1671 at 1674.

[3] Blackbear (NT) Pty Ltd v Want & Anor [2013] NTSC 55 at [36].

[4] Re Stewardson Stubbs & Collett Pty Ltd and Bankstown Municipal Council [1965] NSWR 1671 at 1675 – 1676; see also Brenmar Building Company Pty Ltd v University of Newcastle (1999) 15 BCL 467 at 469.

[5] Hooper Constructions Pty Ltd v Chris’s Engineering Contracting Co [1970] ALR 821 at 823 per Blackburn J.

[6] Ibid.

[7] Batson v Carvalho (1948) 48 SR (NSW) 417 at 427.

[8] [1965] NSWR 1671 at 1674.

[9] Blackbear (NT) Pty Ltd v Want & Anor [2013] NTSC 55 at [35].

[10] Re Stewardson Stubbs & Collett Pty Ltd and Banks Municipal Council [1965] NSWLR 1671 at 1675.

[11] Ibid.

[12] [2009] WASCA 229 at [79].

[13] [2005] NSWCA 340 per Basten JA.

[14] See [7] above.

[15] Shorter Oxford English Dictionary: fifth edition.

[16] Fountain Select Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400.

[17] Explanatory Document for Practice Direction 6 of 2009, paragraphs 7 and 8.

[18] [2012] 32 NTLR 1.

[19] Blackbear (NT) Pty Ltd v Want & Anor [2013] NTSC 55 at [36].

[20] Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council [2006] NSWCA 291 at [102].

[21] Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 per Lord Steyn at 770 – 771.

[22] Balog v Crestani (1975) 132 CLR 289 per Gibbs J at 296-297.

 

[23] [1997] AC 749 at 767 - 768